I bought some boohoo (LSE: BOO) shares a few years ago, and they slumped.
What do you do when that happens, and you still see long-term value? You buy more, don’t you?
That’s what I did. And they fell some more…
What should I do now?
I didn’t put much cash into the stock. With growth stocks, I just don’t. A growth buy is only ever a small aside from my long-term dividend strategy.
I’d have been better off buying clothes from boohoo rather than shares though. Maybe I should sell up and do that now — I think I might have enough left for a pair of socks.
But I ask one key question when I see a growth stock crash so hard. When is it time to buy back in?
Second wind
We’ve seen the same pattern so many times. A promising growth stock soars, then falls, and maybe repeats that a few times.
And then, as if out of nowhere, it starts on a new run. The company gets its act together, and we see sustainable profits.
I keep wanting to get back into boohoo. Part of me just thinks there could a good long-term buy here. But then, another part of me thinks I might be an idiot.
So I stop and ask, how much might I have a year from now if I invest £5k in boohoo shares today?
Short term?
Such a short timescale is not my usual one. But I reckon it’s good to think about when I consider the worst that could happen. It’s a take on billionaire investor Warren Buffett‘s rule number one: Never lose money.
So if I see no chance of losing all my money, that’s a good start. Then, if I see only a low chance of ending the year on any loss, that’s even better.
What, then, does the future for boohoo look like?
Advantage lost
Well, there are no positive earnings on the cards as far out as 2026, so a stock valuation is hard to work out.
This was one of our highest-flying companies not all that long ago. Now it’s struggling to make money. And whether that struggle will succeed looks very uncertain.
Early success was based on boohoo’s early mover advantage. It was a pioneer of online fashion retail. But that advantage is long gone.
Shein seems to be the talk of the town now, with the China-founded firm rumoured to be planning a New York listing. There are also claims that London might be its IPO target.
Buffett again
Buffett once pointed out that the pioneers of a business are rarely the ones that go on to make the big money. His example was aviation, but it could apply anywhere.
So boohoo a year from now? I’d guess at a 50/50 chance that £5k invested today could be worth less than that. And I don’t want to break Rule One.
I still think boohoo could be a good buy for those happy to take the risk. But I won’t buy any more, at least not now.
